Classic Cons… and How to Counter Them A laundry list of Dirty Tricks used by Fraud Artist

ATM Theft

How it works: Automated teller machine (ATM) crimes can take several forms. Thugs may simply approach someone using an ATM and demand money. Or, more sophisticated thieves will watch the victim use the card (perhaps even with high-powered binoculars) and learn his or her card number and personal identification number (PIN). Later they’ll steal the card or make their own and go back to ATMs for cash.

Warning signs: One or more persons loitering around the ATM, often in a car, behind bushes or otherwise nearby. You spot unauthorized ATM withdrawals on your bank statement.

Best defense: Use only ATMs in well-lit, busy areas where unusual activity would be noticed. For after hours or late night use, the best choice may be an ATM in a supermarket, convenience store, gas station or other protected area. When in doubt about a particular location, go on to another ATM where you’d feel safer.

Check Fraud

How it works: Someone steals checks from your home, office or mailbox and forges your signature. Crooks don’t need blank checks to pull off a check fraud. Many know how to easily remove the ink on checks, often by “washing” them with a cleaning solvent. They also will alter what’s already been written, such as by changing a check payable to the I.R.S. to one payable to J.R. Smith. A counterfeiter also can make new checks in your name using a home computer and a printer.

Warning signs: You notice that checks are missing from your checkbook or your reserve supply of checks. Mail containing checks or bank account information is “lost” or appears to have been tampered with. You spot unauthorized transactions on your bank statement.

Best defense: Don’t carry more checks that you need. Keep extra checks in a secure place. Write checks using a pen with thick, dark ink. Draw lines to fill in gaps in the spaces where you designate to whom a check is payable and the amount. John Brugger, a U.S. Postal Inspector in Washington, adds that consumers should “insist that their checks have built-in security features that help make them tamper-resistant to check washing or counterfeiting.” Also immediately report to your bank any irregularities in your bank statements. Report mail theft or tampering to the U.S. Postal Inspection Service, which is listed in your phone book.

Credit Card Fraud

How it works: There are hundreds of ways. Here are just a few. A thief may steal your credit card. Someone may order a new credit card in your name by stealing a pre-approved application from your mail and having the card sent to a different address. An unscrupulous sales clerk can make a duplicate copy of your credit card receipt or use a special device to capture data from the magnetic stripe on your card. One way or another, the thief using phony ID can make or order a credit card, in your name, and use it to obtain merchandise or cash advances.

Warning signs: Unauthorized charges appear on your credit card statement or you get a statement for a credit card you didn’t request. Your mail appears to have been tampered with. Mail containing a new credit card or a credit card statement doesn’t arrive as expected.

Best defense: Promptly report to the card issuer any unusual activity on your statement. If you receive a card you never asked for, or if you don’t get a card you’re expecting, promptly report that to the issuer. Protect your credit cards and card numbers, and don’t keep PIN numbers near the cards. Properly destroy all credit card receipts and statements when no longer needed. Limit the number of credit cards by canceling those you don’t use. Cut up old cards after they expire.

Debt Relief Fraud

How it works: Several frauds and rip-offs are targeting people having debt problems. Some ads declare that a bad credit history can be “erased” or that “debt consolidation” can quickly cure credit problems. Most often, the consumer will pay exorbitant fees or interest rates for unnecessary services. Other ads tout easy ways consumers and small businesses can get low-cost loans, often even without a credit check or collateral. But in many cases the up-front fees are excessive or never lead to a loan being given. Some unscrupulous lenders also may offer to “consolidate” your loans into one loan with no credit check. These may turn out to be home equity loans that carry exorbitant interest rates, onerous payment terms, and the risk of foreclosure on the consumer’s home.

Warning signs: Many legitimate lenders provide debt consolidation loans, but you should shy away from offers that promise to erase a bad credit record if you simply pay a fee and combine different debts into one new loan. Only years of steady performance in paying debts can repair a credit history. Be wary of anyone offering to erase your bad credit record by creating a new identity for you, perhaps by ordering a new Social Security number. That’s illegal. Beware of anyone who asks for money up-front to “guarantee” approval of a loan. “Advance fees” should not be confused with application fees charged by many legitimate lenders, who do not “guarantee” approval of loans after receiving an application fee. Also beware of people who hold seminars to sell kits they say can be used to pay off your mortgage or other debts. The kits, which typically cost $300 to $500, contain items that look like checks but have names like “certified drafts.” Purchasers are told the drafts can be issued in any amount. In reality, these items are worthless, and anyone who pays bills with them risks being prosecuted for using a fraudulent instrument.

Best defense: If you have credit problems, immediately contact your banker and other creditors. Don’t wait until your accounts are turned over to a debt collector. Most of the time, creditors will work with you on a solution, especially if you’ve had a good record in the past. If you can’t solve your debt problems on your own or with the help of lenders, there are other reliable sources of help, including state and local agencies that also offer credit-counseling services for little or no charge. One way to re-establish credit is by obtaining a “secured” credit card (you post a deposit that’s usually equal to or greater than your credit limit) and make your payments on time for a year or so. Not all secured credit cards carry the same interest rates and terms, so shop around. Before agreeing to any loan, deal only with reputable lenders, read the fine print, compare interest rates and question any unusual fees.

Fraudulent CDs

How it works: You see a newspaper or Internet advertisement by an unknown bank, probably one far away, claiming to offer insured certificates of deposit (CDs) at unusually high interest rates. The ad also may say the funds will be held in accounts in “tax haven” countries where the interest will be free from U.S. taxes and protected from scrutiny by U.S. authorities. You send in your money only to learn later that the bank is bogus and the CD is not federally insured. Chances are you won’t see your money again.

Warning signs: The most obvious sign is an extremely high interest rate compared to market rates for CDs advertised by reputable institutions. To fool unsuspecting investors, many successful scams also have involved so-called banks with names very similar to large, well-known U.S. banks. Some foreign entities also say they have “private” insurance for your investment, but this may just be a false claim made only to soothe the fears of potential depositors.

Best defense: As with any deposit or investment, check things out and know who you’re dealing with before sending money. Crooks can counterfeit CDs as easily as checks, so if you want the security of a federally insured CD, only buy from a federally insured financial institution or a reputable broker. Some con artists call themselves banks and falsely advertise FDIC membership to fool unsuspecting depositors. You can find out if an institution is FDIC-insured by contacting the FDIC’s Division of Compliance and Consumer Affairs or doing research on the FDIC’s Internet site ( Also check out the article about the new FDIC program aimed at fraudulent Internet banks. And remember that deposit brokers may sell FDIC-insured CDs, but the brokers themselves are not insured by the FDIC. If you’re not familiar with the broker, contact the Securities and Exchange Commission (SEC) or your state securities regulator.

Identity Theft

How it works: By trickery or using publicly available information, someone obtains personal information about you, assumes your identity and applies for credit cards or checking accounts. The crook has become “you.” He or she then can go on a spending spree.

Warning signs: You get bills, credit card statements, calls from businesses or collection agencies, or other notices for debts and purchases you know nothing about.

Best defense: Don’t give credit card numbers, Social Security numbers or other personal identifying information to anyone over the phone unless you initiate the call. Legitimate banks and others who offer credit cards, such as telephone companies, never call customers asking for information such as PIN numbers. Don’t include your Social Security number on your checks. Protect your mail and your trash from financial thieves (see Pages 2 and 3). If you become aware of anyone using your identity, immediately notify the creditor, law enforcement authorities and the major credit bureaus.

Internet Fraud

How it works: Unusual or inexpensive goods and services are offered over the Internet. The consumer typically pays for something that doesn’t arrive, or the goods and services are not as advertised.

Warning signs: Exaggerated claims often aren’t easy to spot, but if something sounds too good to be true, it probably is a scam. Although people selling goods and services over the Internet may claim lower overhead by selling directly to the public, you should use common sense in determining whether their claims are reasonable. For instance, if a bank doing business over the Internet offers 20 percent interest on deposits, is their cost of business so much less that they can quadruple the interest rate paid by traditional banks? Most likely, it isn’t.

Best defense: When banking or buying over the Internet, only give credit card or other personal information to companies you know and trust. If you don’t know anything about the company, contact your local Better Business Bureau to find out if any complaints have been filed. Your Internet service provider also can provide useful advice about safely using the ‘Net. Also see our warning about fraudulent CDs on the previous page. For more tips for avoiding online problems and scams, see the fall 1997 issue of FDIC Consumer News.

Investment Fraud

How it works: You get or see an offer of “guaranteed” big returns (up to 100 percent or more) on investments, business opportunities and other “no-risk” deals. Many of these deals involve pyramid schemes where funds received from new investors are used to pay earlier investors, thus lending credibility to scam artists who may boast of returns paid to investors. At some point, though, the crook takes the money, flees the area, and leaves the latest investors with nothing but worthless paper. A related scam involves “prime bank” instruments. These are nonexistent investments that scam artists advertise as returning 100 to 1,000 percent of the investor’s original investment.

Warning signs: Avoid investments that defy logic and offer unrealistic returns. Again, if it sounds too good to be true, it probably is a scam. Avoid high-pressure sales pitches. “If these supposedly high-return, no-risk investments were legitimate, nobody would have to contact you or pay to advertise them,” says Gene Seitz, an FDIC fraud investigator based in Washington. “They wouldn’t even have time to call you because they’d be too busy answering incoming calls.”

Best defense: Deal only with reputable investment firms. Ask the SEC or your state securities regulator about the legitimacy of a broker or an investment opportunity. Check out business opportunities with places such as your state corporation licensing division and/or the Better Business Bureau.

Nigerian Scam

How it works: You receive an official-looking letter from someone claiming to be a Nigerian who, because of Nigerian government rules, needs help transferring money out of that country. Perhaps you’re asked to deposit the funds into your bank account for a “reward” of 20 to 30 percent of the funds, which usually are in the millions of dollars. To do your part, you’re simply asked to supply your bank account number and some money supposedly to cover “expenses.” But the crooks behind these scams simply keep your money and use the account information to steal more money. Another variation involves a request that you act as a “front” in a real estate purchase so the true identity of the Nigerian can be kept secret. You’re offered a hefty fee for your services but you’ll have to provide “good faith” money and help pay certain expenses. Then the only funds exchanged go from the unsuspecting victim to the con artist.

Warning signs: Nobody is going to give you a percentage of millions of dollars simply for the privilege of using your bank account or your name to transfer money to the U S. Some people have lost their lives trying to collect their money lost in this scheme.

Best defense: If you receive a letter or fax containing promises of instant wealth, don’t respond. Promptly take it to your nearest U.S. Postal Inspection Office.

The Phony Investigator

How it works: A consumer, often an elderly person, is approached by someone claiming to be a bank examiner, bank security officer, police officer, Internal Revenue Service (IRS) auditor or some other “agent” involved in an “official” review or investigation. For example, the consumer may be asked to withdraw cash from his or her bank account, or to let the investigator review personal account records, supposedly to aid in an investigation of a possible fraud at the bank. The successful con artist walks away with the cash or the confidential information that can be used to raid the consumer’s bank account.

Warning signs: Be wary of anyone who approaches you claiming to be a government employee investigating a bank, a bank employee, or otherwise asking for access to your cash or bank records. Government agencies do not turn to bank customers to withdraw personal funds or give account information as part of an investigation. Also, in cases such as IRS audits, you’ll be notified in advance by mail.

Best defense: Decline any requests to give cash or confidential information to anyone who approaches you claiming to be a police officer or government investigator. Promptly report the matter to your bank’s security officer and/or local law enforcement authorities.


Telemarketing Fraud

How it works: You get an unsolicited phone call or mailing with an offerof prizes, a vacation package, merchandise or other opportunities that are said to be “too good to miss” and “available only if you act now.” You agree over the phone to give cash or bank account information up-front to take care of a supposedly minor fee or tax. Later you discover that the con artists have taken your money and you have little or nothing to show for it.

Warning signs: High-pressure sales people offer prizes, goods or services that can only be delivered upon receipt of cash, a credit card number or checking account number. While prizes are usually subject to federal income taxes, this money is only payable to the IRS when you complete your income tax returns. Taxes never are collected up-front when legitimate prizes are awarded. Be wary if the caller says merchandise is “unique” and available only at a special price if purchased now.

Best defense: Buy only from a reputable telemarketing firm. Never pay a fee to receive something “free.” If you have doubts about a particular firm, contact the Better Business Bureau and/or the Federal Trade Commission to see if complaints have been registered against the firm. Also keep in mind that seemingly innocent “telephone surveys” may be used by scam artists to collect information that can be used in future telemarketing frauds.